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Japan upgrades Q3 GDP despite recession, COVID risks

Japan will likely be affected by a worldwide slowdown and China’s real estate crisis, which might lead to a technical recession

Japan, the world’s third-largest economy, saw a smaller drop in the third quarter than what was expected, supporting the idea that it is coming out of the COVID gloom, even though its export markets are still hurting.

Statistics revealed that the economy had experienced its first current account deficit since 2014 in October 2022, as a result of increased import costs brought on by the yen’s collapse.

The revised 0.8% GDP decrease reported by the Cabinet Office was lower than the early estimate of 1.2% and the median projection of experts in a Reuters poll of a 1.1% annualized decline.

Private inventories increased, which is why the revision was higher than the prior quarter’s annualized quarterly gain of 4.5%.

Unexpectedly, Japan’s economy contracted as rising import costs and global recession affected consumer and business activities.

Experts bat for the economy to get robust in 2023 as semiconductor and car supply limits were lifted and COVID-related border controls were taken away.

Takeshi Minami, chief economist at Norinchukin Research Institute, predicted that the resumption of inbound tourism and domestic travel programmes would increase private consumption and contribute to the economy’s return to growth.

Japan will likely be affected by a worldwide slowdown and China’s real estate crisis, which might lead to a technical recession or two consecutive quarters of contraction in the first half of 2023.

Before annualization, third-quarter GDP decreased by 0.2% from the prior quarter, as opposed to the earlier estimate of a 0.3% contraction.

Even though private spending was downgraded, it helped growth because it is a critical sector that makes up more than half of Japan’s GDP. The two significant drivers of growth were capital spending and exports.

A weak yen and high import costs, which raise living expenses, more than outweigh the positive effects of GDP growth.

According to the Ministry of Finance figures, rising energy and other import expenses caused Japan’s current account deficit to increase to 609.3 billion yen (USD 4.45 billion) in October. The lapse was the first since March 2014.

The current account deficit for October was 64.1 billion yen before the seasonal adjustment, the first deficit since January.

According to the Bank of Japan’s most recent Tankan survey of businesses, manufacturers’ sentiment deteriorated in the three months leading up to September as the future of the fragile economy was clouded by persistently high material costs.

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